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(CNN)   S&P downgrades European banks' credit ratings because of tighter regulations. Wait, what?   (money.cnn.com) divider line 31
    More: Stupid, Eurobank EFG, credit ratings, Europeans, credit rating agency, Deutsche Bank, capital requirements, european banks, Credit Suisse  
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626 clicks; posted to Business » on 03 Jul 2013 at 9:11 AM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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vpb [TotalFark]
2013-07-03 08:14:18 AM
Sometimes I wonder if the ratings are more about influencing policy than rating the financial soundness of the bank in question.
 
2013-07-03 09:07:36 AM
After reading about some of S&P's unethical business practices lately, I really don't care what they have to say.
 
2013-07-03 09:17:24 AM

Cythraul: After reading about some of S&P's unethical business practices lately, I really don't care what they have to say.


Yup
 
2013-07-03 09:20:34 AM

Cythraul: After reading about some of S&P's unethical business practices lately, I really don't care what they have to say.


No, you should care, because doing the opposite of what they say is probably going to make you money.  They're like the George Costanza of the finance world.
 
2013-07-03 09:23:14 AM

Arkanaut: Cythraul: After reading about some of S&P's unethical business practices lately, I really don't care what they have to say.

No, you should care, because doing the opposite of what they say is probably going to make you money.  They're like the George Costanza of the finance world.


They get an unintentional erection whenever Moody's gives them a back massage? They sit on a wallet that has way too many receipts contained within?
 
2013-07-03 09:33:10 AM

vpb: Sometimes I wonder if the ratings are more about influencing policy than rating the financial soundness of the bank in question.


Usually the ratings are simply a function of how well the rating agency was paid off. It's like JD Powers ratings.
 
2013-07-03 09:37:19 AM
tighter regulation means less profits.
less profits means less money moving through the investment system for that location.
S&P is about earning money via investments.

S&P downgrades banks because banks won't be generating as much investment.
S&P is accurate to its mission. It is telling investors, 'don't expect to make as much from these entities in terms of investments."

Totally Legit..
 
2013-07-03 09:54:38 AM
I'm starting to think we should look into regulating some of these ratings companies, given the power they weild.
 
2013-07-03 10:01:22 AM

Felgraf: I'm starting to think we should look into regulating some of these ratings companies, given the power they weild.


the German government has teamed up with Bertelsmann to create an independent, non-profit ratings agency

there is another non-profit agency under development in Europe as well.

http://www.ft.com/cms/s/0/302e5b38-84ab-11e1-b6f5-00144feab49a.html#a x zz2XzU6p8Ts
 
2013-07-03 10:11:49 AM
The banks can just pay the ratings agencies off to get their credit rating back.
 
2013-07-03 10:16:03 AM

Cythraul: Arkanaut: Cythraul: After reading about some of S&P's unethical business practices lately, I really don't care what they have to say.

No, you should care, because doing the opposite of what they say is probably going to make you money.  They're like the George Costanza of the finance world.

They get an unintentional erection whenever Moody's gives them a back massage? They sit on a wallet that has way too many receipts contained within?


S&P's fiancee died from licking too many cheap envelopes.
 
2013-07-03 10:17:35 AM

FarkedOver: The banks can just pay the ratings agencies off to get their credit rating back.


"That's a nice credit rating you have there. It'd be a shame if anything happened to it."
 
2013-07-03 10:19:01 AM

dumbobruni: Felgraf: I'm starting to think we should look into regulating some of these ratings companies, given the power they weild.

the German government has teamed up with Bertelsmann to create an independent, non-profit ratings agency

there is another non-profit agency under development in Europe as well.

http://www.ft.com/cms/s/0/302e5b38-84ab-11e1-b6f5-00144feab49a.html#a x zz2XzU6p8Ts


It makes a lot of sense given that the commercial ratings agencies have been shown to overrate the risks of government debt systematically, which given the common requirement to buy bond insurance, which the cost is based on the agencies ratings essentially translates to a massive amount of tax unnecessarily handed over to the bond insurance companies.

John Quiggin has written loads on this over the years, to chose one of the series at random: http://crookedtimber.org/2008/10/20/discredited/
 
2013-07-03 10:24:35 AM

Cythraul: FarkedOver: The banks can just pay the ratings agencies off to get their credit rating back.

"That's a nice credit rating you have there. It'd be a shame if anything happened to it."


Reminscient of the AG suing Standard and Poor's.

"downgrade our debt and make our government look bad? Here's a lawsuit for you.

Moody's and Fitch, take note. Independent analysis and honest opinions of the US governments creditworthiness will NOT be tolerated."
 
2013-07-03 10:26:49 AM

Felgraf: I'm starting to think we should look into regulating some of these ratings companies, given the power they weild.


Or, you know, you could just not pay attention to them. Or, invest I the opposite of what they say, like Arkanaut suggests upthread.
 
2013-07-03 10:29:52 AM
S&P only says nice things about you if you pay them enough money.
 
2013-07-03 10:30:05 AM

BHShaman: tighter regulation means less profits.
less profits means less money moving through the investment system for that location.
S&P is about earning money via investments.

S&P downgrades banks because banks won't be generating as much investment.
S&P is accurate to its mission. It is telling investors, 'don't expect to make as much from these entities in terms of investments."

Totally Legit..


You're almost correct. It is legit. What I get from TFA is that the increases regulations will reduce profitability, making it more difficult for banks to earn money to service their debt. Therefore the debt gets downgraded.

I don't think they are downgrading the banks safety to depositors.
 
2013-07-03 10:39:53 AM

Debeo Summa Credo: Or, you know, you could just not pay attention to them. Or, invest I the opposite of what they say, like Arkanaut suggests upthread.


Well, given their actions have impacts on me ANYWAYS, whether I listen to them or not, no, I can't exactly just do that.

It was their either ineptness or utter malfeaseance that helped enable a, you know, MASSIVE GLOBAL RECESSION by them giving AAA rating to effectively junk. So, uh, no. Me ignoring them doesn't magically stop that.
 
2013-07-03 10:49:56 AM

Felgraf: Debeo Summa Credo: Or, you know, you could just not pay attention to them. Or, invest I the opposite of what they say, like Arkanaut suggests upthread.

Well, given their actions have impacts on me ANYWAYS, whether I listen to them or not, no, I can't exactly just do that.

It was their either ineptness or utter malfeaseance that helped enable a, you know, MASSIVE GLOBAL RECESSION by them giving AAA rating to effectively junk. So, uh, no. Me ignoring them doesn't magically stop that.


We all know the recession was triggered by selling houses to black people
 
2013-07-03 10:55:08 AM

vpb: Sometimes I wonder if the ratings are more about influencing policy than rating the financial soundness of the bank in question.


Sometimes?
 
2013-07-03 10:55:24 AM

Cythraul: Arkanaut: Cythraul: After reading about some of S&P's unethical business practices lately, I really don't care what they have to say.

No, you should care, because doing the opposite of what they say is probably going to make you money.  They're like the George Costanza of the finance world.

They get an unintentional erection whenever Moody's gives them a back massage? They sit on a wallet that has way too many receipts contained within?


Exactly!

/
 
2013-07-03 10:56:08 AM

InmanRoshi: vpb: Sometimes I wonder if the ratings are more about influencing policy than rating the financial soundness of the bank in question.

Sometimes?


I think they were asking if sometimes that ever doesn't happen?
 
2013-07-03 10:56:59 AM

Felgraf: It was their either ineptness or utter malfeaseance that helped enable a, you know, MASSIVE GLOBAL RECESSION by them giving AAA rating to effectively junk. So, uh, no. Me ignoring them doesn't magically stop that.


The free market fairy will prevent the next one.
 
2013-07-03 11:20:59 AM

Felgraf: Debeo Summa Credo: Or, you know, you could just not pay attention to them. Or, invest I the opposite of what they say, like Arkanaut suggests upthread.

Well, given their actions have impacts on me ANYWAYS, whether I listen to them or not, no, I can't exactly just do that.

It was their either ineptness or utter malfeaseance that helped enable a, you know, MASSIVE GLOBAL RECESSION by them giving AAA rating to effectively junk. So, uh, no. Me ignoring them doesn't magically stop that.


If they were indeed so inept that they need to be "regulated", whatever that means to you, then why does anybody pay any attention to them? Wouldn't their ineptness prompt investors and creditors to not pay attention to their ratings anymore? Or are you just smarter than those investors?

You can't say : "these guys are so dumb/corrupt that they can't be trusted, so we need to regulate". If they're actually that bad, why are people paying attention to them? Who cares what ratings they give to these banks? They're corrupt morons!
 
2013-07-03 01:13:07 PM

Debeo Summa Credo: If they're actually that bad, why are people paying attention to them?


It's almost like the financial sector is a big incestuous house of cards, to the point where just one failed entity can take down the entire system with it.
 
2013-07-03 01:23:54 PM

Debeo Summa Credo: If they were indeed so inept that they need to be "regulated", whatever that means to you, then why does anybody pay any attention to them? Wouldn't their ineptness prompt investors and creditors to not pay attention to their ratings anymore?


Good question.  I think the answer is that only the media pays attention to them anymore, and everyone else pays attention to the media because the ratings agencies still wield a lot of power at a social level.  YOU seem to imply their importance is proof of competence, but that's a very silly, circular argument.  At this level of sophistication, the same argument could be said for Kim Jong-un -- if he's so inept, why do people still allow him to rule?

Because they have no choice, that's why.  At least they think they don't.  The problem isn't the agencies are respected; it's that they're gatekeepers.  The key to getting whitelisted on various low-risk funds like insurance reserves or pension funds was that coveted AAA rating.  A lot of the damage was because that AAA rating was authentic for decades until the sales guys took over the product and handed out candy for bribes.  It wouldn't have prevented what the banks were doing, but it certainly spread the damage.  Well, until all those "low-risk" investors re-write their policies to break their dependence on clearly self-serving agencies, the vulnerability is still there -- hence the Quixotic efforts to regulate the agencies.  The problem is, what other choice do they have?  No fund manager actually wants to take the time to perform their own investment analysis; they don't have the budget anyway, what with all these funding shortfalls they're tasked with making up for by chasing questionable investments in the first place.  People were relying on the agencies even when independent research was still feasible (which is probably why the agencies had to be competent -- otherwise they'd have no business); the market is now much broader and complex.  There may be a couple of exceptions I haven't heard of, but in almost all cases, I still see everything from endowments to retirement funds as intensely vulnerable to the next house of cards because the henhouse patrol options are either a fox or no one at all.  The entirety of institutional investment is suffering from a bizarre stage of Stockholm Syndrome where they just realized they've been in an abusive relationship for years, but have been beaten so long they lack the ability to comprehend autonomy or freedom, and find such concepts terrifying.  They crawl back to the abuser because they don't think they have any other place to go.

These guys are NOT good at what they do, if what they do is accurately rating investments.  It's not their competence that's still worthy of attention; it's that their influence is still worthy of fear.
 
2013-07-03 02:10:39 PM

InmanRoshi: Felgraf: It was their either ineptness or utter malfeaseance that helped enable a, you know, MASSIVE GLOBAL RECESSION by them giving AAA rating to effectively junk. So, uh, no. Me ignoring them doesn't magically stop that.

The free market fairy will prevent the next one.


GIS:

i.imgur.com
 
2013-07-03 02:31:45 PM

dragonchild: Debeo Summa Credo: If they were indeed so inept that they need to be "regulated", whatever that means to you, then why does anybody pay any attention to them? Wouldn't their ineptness prompt investors and creditors to not pay attention to their ratings anymore?

Good question.  I think the answer is that only the media pays attention to them anymore, and everyone else pays attention to the media because the ratings agencies still wield a lot of power at a social level.  YOU seem to imply their importance is proof of competence, but that's a very silly, circular argument.  At this level of sophistication, the same argument could be said for Kim Jong-un -- if he's so inept, why do people still allow him to rule?


Seriously, Kim Jong Un? Ridiculous


Because they have no choice, that's why.  At least they think they don't.  The problem isn't the agencies are respected; it's that they're gatekeepers.  The key to getting whitelisted on various low-risk funds like insurance reserves or pension funds was that coveted AAA rating.A lot of the damage was because that AAA rating was authentic for decades until the sales guys took over the product and handed out candy for bribes.  It wouldn't have prevented what the banks were doing, but it certainly spread the damage.  Well, until all those "low-risk" investors re-write their policies to break their dependence on clearly self-serving agencies, the vulnerability is still there -- hence the Quixotic efforts to regulate the agencies.  The problem is, what other choice do they have?

There you go.  Those 'low risk' investors aren't changing their policies because they still believe the ratings have value and are worth using.  Are they more skeptical than before?  Probably, but if the ratings were as corrupt or incompetent as you seem to think they are then no investor would place any reliance on them.  The policies would be changed immediately.  The fact that they havent indicates that the ratings are still useful and considered valid.

Also, you are too smart to think that there were actual bribes involved.  At worst, there was marketplace pressure to relax standards, e.g.," the other rating agencies lowered/didn't raise their overcollateralization requirement for CMBS securities, we're going to get rated by them"

These guys are NOT good at what they do, if what they do is accurately rating investments.  It's not their competence that's still worthy of attention; it's that their influence is still worthy of fear.  ...

Your views conflict with that of all the institutional investors you accuse of being subject to stockholm syndrome.  (as in stockholm finland).  It's like you are arguing that we need to regulate the agencies because a) they are too stupid/corrupt ot rate things properly, and b) all the insitituional investors are too stupid to realize that the agenices are stupid and/or corrupt and therefore are still using the ratings.   Maybe you are smarter than all insitutional investors, but probably not.  There are plenty of 'investor-pay' rating agencies out there, who will tell you all day long that they don't have the same conflicts as S&P et al.  Presumably if S&P were held in such low regard investors could use these other guys.

Also, its worth noting that though the agencies did fark up, they farked up directionally the same way everyone else did.  Citibank and Wachovia and Bear Stearns and all the other guys who got into the shiat believed that these products were money good, because they didn't buy into the possibility of a nationally correlated, steep decline in real estate prices was possible.  The same reason that millions of homeowners got into trouble, the same reason that we've had to give hundred+ billions to Fannie Mae and Freddie Mac.  It was a bubble that all these parties bought into.

You may agree with me on this, but what needs to happen is not regulation of the agencies, but regulation of their influence, where possible.  We shouldn't  pass regulations that refer to credit ratings anymore.  I work in insurance, and the NAIC moved away from using rating agency ratings for determining capital charges for RMBS and CMBS securities.  That's good, but now they get rated by Pimco and Blackrock, so I don't know how much conflict of interest was avoided by moving ratings to firms that actually invest in the bonds they are rating.  Shows that there isn't an easy solution to the perceived problems.

Also, another big factor where ratings affected the crisis was in situations where downgrades triggered default provisions or collateral posting requirements for companies.  look at Enron and AIG, where a one letter downgrade caused a cascade of bad things to happen that caused failure/bailout.  Don't know how you go about banishing rating references from debt contracts, but that would be another way I believe the system could be improved.
 
2013-07-03 03:37:11 PM

BHShaman: tighter regulation means less profits.
less profits means less money moving through the investment system for that location.
S&P is about earning money via investments.

S&P downgrades banks because banks won't be generating as much investment.
S&P is accurate to its mission. It is telling investors, 'don't expect to make as much from these entities in terms of investments."

Totally Legit..


short term
 
2013-07-03 05:40:09 PM

Debeo Summa Credo: Seriously, Kim Jong Un? Ridiculous


Yeah, it's about that ridiculous.

Debeo Summa Credo: Those 'low risk' investors aren't changing their policies because they still believe the ratings have value and are worth using.


Really, is the ONLY reason you think a policy doesn't change is because it's working?  You're either the guy at the office too dim to realize you're the butt of everyone's office jokes, or you're truly blessed to have never been exposed to a work environment hobbled by vested interests.  If my in-law who worked for the State read this I think the laughing fit might kill him.

Debeo Summa Credo: if the ratings were as corrupt or incompetent as you seem to think they are then no investor would place any reliance on them. The policies would be changed immediately.


To what?  You can't manage a fund by investing in nothing and these funds don't budget for their own investigation (very labor-intensive work), so what's your magic alternative you're comparing to?  Other ratings agencies with even less of a track record?

Debeo Summa Credo: you are too smart to think that there were actual bribes involved


Yeah, it'd be more accurate to call it prostitution.  It's not a "bribe" in a criminal sense because selling an opinion isn't against the law, but I'm not a lawyer so I consider the distinction quibbling.

Debeo Summa Credo: Maybe you are smarter than all insitutional investors, but probably not.


(sigh) I know this sets me up for an orgy of fun times in a Fark thread, but this really, really would NOT be the only time I was right and the rest of the world was wrong.  I get by now that you operate in some sort of bizarre mindset that Wall Street sets the bar for intelligence and that no one could possibly be smarter, but frankly, I've worked with these sorts and they're really no smarter or dumber on average than. . . well, average.  In fact, you seem to say so yourself:

Debeo Summa Credo: its worth noting that though the agencies did fark up, they farked up directionally the same way everyone else did.


You realize that's not a point in their favor, right?  If the justification for a decision is that "everyone else believed the same thing", it means you're too farking stupid to think for yourself.

But for what it's worth, I don't think it's purely a matter of smarts.  I think you place waaay too much confidence in a bunch of people whose hubris scares me far more than their intelligence, but I think the decisions were much stupider than the people making them.  Ergo, I don't necessarily think I was smarter than these guys; just free to make and justify my own decisions -- namely, holding off on buying a house and getting my mother's savings out of the market before it crashed.  And it worked.  We avoided most of the mess while others got destroyed.  I don't think that makes me a genius; I feel a lot more like the only sane person in a country gone mad.  But at least we can put this whole "Wall Street uber alles" thing to rest, because if my actions are any indication by the very standards you're measuring, I AM smarter than them.

I'm more sympathetic than that though.  You know how to make a smart person do really dumb things?  Make it his job.  Namely, make him responsible for working with the decisions that are A) very stupid, and B) not his.  You say the investors that rely on the agencies are openly comfortable with them.  WHAT THE FARK ELSE KIND OF ANSWER DO YOU EXPECT???  What, some guy's gonna go, "Oh, yeah, we put our entire $30 billion endowment in some securities that the ratings agencies approved but we don't trust them so we totally expect them to tank."  Who the fark makes investment decisions they aren't confident in, or at least publicly expresses confidence in?
 

Debeo Summa Credo: I work in insurance, and the NAIC moved away from using rating agency ratings for determining capital charges for RMBS and CMBS securities. That's good, but now they get rated by Pimco and Blackrock, so I don't know how much conflict of interest was avoided by moving ratings to firms that actually invest in the bonds they are rating. Shows that there isn't an easy solution to the perceived problems.



Oy.  That's EXACTLY what I'm saying, so what the heck?  Where does your real-world experience stop and the blind ideologist take over?
 
2013-07-04 09:13:32 AM

Mad_Radhu: vpb: Sometimes I wonder if the ratings are more about influencing policy than rating the financial soundness of the bank in question.

Usually the ratings are simply a function of how well the rating agency was paid off. It's like JD Powers ratings.


And do you want your money in a bank that can't even afford to pay off the S&P? I sure don't.
 
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